Data: What Happens to PR Firms in a Recession, a 2009 Forecast

Left: Access the Slides from the USC report on The Impact of the Current Economic Situation on Public Relations/Communication

The USC School of Communication contacted me about their latest study based of 200 PR agencies to find out the impacts of their business during a recession. The report and press release have lots of great data and there are dozens of graphs in the presentation, so in the usual web strategy style, I’ll boil down what’s important to business folks –from an industry perspective.

By The Numbers: Key Takeaways from Forecast Report of PR Firms

Budgets: Half of firms to suffer from 20% reduced budgets
The report indicates that “Half (51%) of responding organizations indicated their FY 2009 PR/communication budgets were smaller than what they actually spent in fiscal 2008, by an average of 19%” (reduction rate). This means that half of PR agencies have had a reduction, right about 20%. On the good side, there was some growth “Surprisingly, 18% of the responding organizations indicated that their PR/Communication budgets actually increased from FY 2008 to FY 2009, by an average of 14.2%.” Although the report warns of some caveats in comparing year to year growth. The remainder of respondents (31%) showed no change, although there’s some weighing to the overall economic changes.

Layoffs: 20% to expect headcount reductions
The report indicates that most will not have any changes “For the current (2009) fiscal year, 73% anticipate no changes in staffing levels”. Although there some anticipate growing their company, and will increase the staff size 15% “7% anticipate growth, of about 15% on average”. Perhaps the most disconcerting numbers is that one fifth plan to have staff reductions “A fifth (20%) anticipate that staff reductions”. How many will be laid off? according to this survey, on average, over a quarter of the company will be cut “averaging to 27%, will occur at some point during the year.”

Compensation: 21% will reduce salary
The report reads that: “For 2009, 56% anticipate compensation freezes, while 21% believe they will have to reduce compensation by an average of 11.7%”. Over one fifth of firms will reduce their compensation, and take about a tenth of their paycheck slices. Now is not the time to buy that new car.

Summation of Findings: What You Should Do
Things don’t look so rosy for the PR industry, but they’re not alone, this is impacting just about every other industry. 20% will have headcount reductions and same with compensation. Actually, that number (20%) is what I’m hearing across other industries, it seems to be a common number that I’m hearing from other sales and executives their being impacted with. That’s of course, small data bits, and not anything scientific. The key trend here is that across the board, most firms will trim their workforce, have less money to work with, and most will not be getting raises.

PR Professionals Must Skill Up
Let’s be honest, those in the 20% that are going to get cut are those that aren’t delivering value to clients –or aren’t guiding the company in a strategic way. Let’s focus on the account folks first. Those that are customer facing and are doing the work for brands, need to stay current with their current skill set. If you’ve not developed social media skills by now in 2009, you are behind, and those that already experimented and folded into practice have a couple of notches in their belt, and experience matters second to having a strategy.

Secondly, those that are management need to quickly adjust the PR firm to offer more outputs for clients than ever before. Understanding not only how to deliver the traditional PR deliverables of strategy, positioning, influence, and monitoring need to also be aware of the changes that are happening in the digital realm as social adoption increases during a recession, and the growth of mobile devices. Update: See which firms score well on the social front, from ZDnet and Cece Lee’s projects.

Buyers Should Renegotiate PR Contract
This one is going to raise hell with PR professionals, but if you’re a buyer of PR agency services, you should renegotiate your fees and contract at a reduced rate. The market simply has changed, and as with every other industry, demand and supply, cause changes. Now, this isn’t to suggest you cut rates and lose the quality of service you’re getting, but figure out what areas the firm is not providing value and reduce those services. On the other hand, you can try to increase your budget with these firms, and ask for services greater than you could have afforded in an upswing, now that you, as the buyer, are in clear control. Update: A marcom director at a large tech company tweeted she already renegotiated her contract with their PR firm, locking them in for a year, at probably a reduced rate, this is both good for the firm and brand as it keeps the cash flowing.

Lastly, it’s not as bad as it sounds, it could be worse, you could be in the newspaper business.

That’s my take on this helpful report from USC, I’d love to hear your reactions what PR firms, PR professionals, and buyers should do.

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  • http://www.storeymanseau.com Laurie Storey-Manseau

    Thoughtful insight and very helpful information. Thank you!

  • http://www.hotwirepr.com Andy West

    Actually this is not as dramatic as I might have expected. Here in the UK, we are certainly seeing a slowdown but also as in previous ‘recessions’, opportunities exist. You are right to observe that that the victims will be those firms that just don’t cut it. The winners will be those who are smart, who continue to innovate and who listen very very carefully to the pulse of their client base. Common sense really.

  • http://theflack.blogspot.com Peter Himler

    Jeremiah,

    As you surmised, it is the last item (recommendation) with which I take issue. Overall, the study does not deviate much from what we’re hearing in our industry (and may others). But the notion that companies should renegotiate the terms of their agency engagements doesn’t make sense given that fact that public relations, of all the marketing disciplines, has always been the most efficient spend.

    In fact, I would recommend that CMOs re-allocate a greater piece of their marketing budget to PR during tough economic times. They may just be surprised at the increased ROI.

    Peter Himler
    Flatiron Communications LLC
    http://www.flatironcomm.com

  • http://directmarketingobservations.com/2009/02/24/mardi-gras-and-social-media/ Marc Meyer

    Tough call Jeremiah. Firms need to socially engage both physically and virtually; and those that can will be the ones that are still standing. They may also have to do more with less. Moreso than they ever have before. Guess we’ll find out who’s working harder and who’s working smarter pretty quickly here in 2009.

  • http://www.gravesfowler.com Cynthia Fowler

    Aah. The “do more with less” mantra just got louder. I agree with Jeremiah. We’re in creative services and are working harder to make stressed client budgets go further. Maybe we cut the scope of the work we do, but to just reduce our rates devalues our services and will be hard to turn around at the end of this recession. We’re trying to give a new definition to “creative” that encompasses making every dollar go as far as it can for our clients.

  • http://www.outcastpr.com/ Leah Taylor

    Thanks so much Jeremiah, seems to be consistent with what I’m reading and hearing. Appreciate you pulling out the key takeaways. I’ll be sure to update my Twitter/Facebook feeds :-)

  • http://www.web-strategist.com/blog/ jeremiah_owyang

    Peter Himler

    Can you back up with data that PR is the most efficient spend for marketers? I know (from research) that marketers are most focused right now on qualified leads.

    PR doesn’t always provide leads, in fact that may not be the primary reason to hire a strategic communication firm. Respectfully, I’m standing by my recommendation as I know I can back it up with data.

    BTW: I dig your blog, good topics http://theflack.blogspot.com/

  • Jenifer Olson

    Hi Jeremiah,

    Not sure I agree with this…

    “Let’s be honest, those in the 20% that are going to get cut are those that aren’t delivering value to clients – or aren’t guiding the company in a strategic way…”

    This hasn’t been my experience. I’m sure there are many excellent employees who have suffered layoffs in this economy. No?

    Jenifer

  • http://www.web-strategist.com/blog/ jeremiah_owyang

    Jennifer

    Value: It’s a matter of perception. Management will cut those who they perceive to be of value or not.

    A savvy PR professional isn’t just doing PR for their clients –but also internally as well.

    For that matter, that’s in any industry. Sadly, good workers can be passed up if they’re not good communicators or measure their impact.

  • http://www.wire-to-wire.com Renay Fanelli

    Clients are definitely trimming spending but with the recognition that scope of work will be trimmed as well (keeping fingers crossed going forward). Many are zeroing in on traditional and social media outreach as those are viewed as most cost-efficient and credible. And, thank you for your always insightful, crisp take on detailed data.

  • http://www.web-strategist.com/blog/ jeremiah_owyang

    This is an important tweet from amorriso
    The Director of Marcom at Tibco

    She tweets:

    “@jowyang Interesting study. We already renegotiated with our agencies, to our benefit and theirs (1yr contract)”

    http://twitter.com/amorriso/statuses/1258566582

    Makes sense, PR firms should renegotiate a long(er) term contract at reduced rate, keeping cash flowing in the door.

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  • http://www.360prblog.com Elicia Basoli

    This information is very informative, Jeremiah. Thank you. All types of client industries are being impacted by the economy, but I wonder if there is any indication of whether reductions were found in more of the b-to-c realm vs. b-to-b and vice a versa.

  • http://blog.tripledogs.com Tom Myer

    The emergence of Twitter is impacting the PR community in much the same way as blogging/content management/wikis impacted the web design agency community. I used to catch hell from web designers all the time (“selling content management hurts our pocket books”) but my response was always the same: “do you really want to have a business making penny ante changes to web content? or do you want to be strategic?”

    Same here, methinks. Twitter allows companies to drive traffic and spread the news along a viable channel that people actually listen in on. PR agencies need to stop flooding the planet with un-read press releases and get strategic.

    Spoken, of course, by someone with only limited exposure to what PR agencies do. :)

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  • http://www.linkedin.com/rtrice Rick Rice

    PR needs to do a much better job of proving its real impact on business performance. It has been a frustration for the 30+ years I’ve been in or around the business.

    Peter makes good points, but until ‘we’ start proving it we’re not going to get the budgets or, really, be consistently listened to at the right levels of our client organizations.

    Could be why I stay mostly retired…

  • http://twitter.com/moon paul

    The bottom fell out of our economy in October because we were unaware of the reality of the situation, thanks in a large part to PR

  • http://www.marketingresellers.com Nick Stamoulis

    The competition is going to quickly get brutal. With more PR firms scrambling to get new business it will get even more fierce.

  • http://www.prnewser.com Joe Ciarallo

    The Council of PR Firms also had a report come out this week. I covered it here: http://www.mediabistro.com/prnewser/agencies/council_of_pr_firms_industry_expanded_in_08_67_predict_09_to_be_flat_or_down_109880.asp

    Jeremiah, you’re right that their will certainly be fee re-negotiations, however, so far I’ve read more about this in regards to ad agencies. I’m not saying that it’s not happening across the dial, however.

    Joe

  • http://www.bitepr.com david hargreaves

    Interesting piece. I echo much of what has been said. However I really do feel it is a bigger opportunity than threat for the companies that get it.

    The great thing about social media is it generates social actions which can be used to demonstrate ROI better than any other sort of PR evaluation

    We just need to see out the recessionary speed bump! http://tinyurl.com/5hja8l

    David

  • http://www.centerline.net/blog/ Fabian Marquez

    WWEBD? (What Would Eddie Bernays Do?) http://centerline.net/blog/?p=177

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  • http://www.campusfork.com Rayfil @Campusfork

    We recently worked a PR agency representing Pinkberry for their grand opening in Santana Row.

    http://tinyurl.com/bb5avk

    PR agencies must target toward clients with a daily cash cow business such a QSR (Quick Service Restaurant).

    While mid to high end restaurant will suffer, operators serving pizza, sandwiches, or any dish that encompass the magic number of $10 and below will thrive.

    PR agencies targeting green movements will be a great strategy as well.

  • http://www.businessthree0.com Michael

    PR firms need to catch up with new technology. Hundreds of millions of consumers are waiting to be engaged. Companies need to take advantage of social media, as well as have a presence for marketing and sales purposes on social networks. This new social media technology is ready and waiting to be used. Maybe the business world doesn’t feel ready for it, but consumers are- and social networks are in need of the business.

    So let’s make it happen!

  • Don

    “Things don’t look so rosy for the PR industry, but their not alone, this is impacting just about every other industry.”

    Surprised someone who purports to be a commentator on the communications industry made such a fundamental grammatical error in the sentence I’m directly quoting from your column. Should be “they’re,” not “their.” Even more accurately, the correct word should have been “it’s” since the term “PR industry” is singular.

  • http://theflack.blogspot.com Peter Himler

    Jeremiah,

    I can’t provide specific data to back up my assertion that PR is a more efficient spend than other marketing disciplines. I can only draw on my professional observations on what fee a BBDO might require to mount a national ad campaign versus what its sister agency Ketchum may need for a comparable PR campaign, i.e., seven or eight-figures versus six figures.

    I can’t say the same for online marketing where the disparity in fee structures from agency to agency is not as severe. So perhaps I should have qualified my statement to say that traditionally PR has been more cost-effective marketing discipline, but in the digital and social media realms, all bets are off.

    Peter Himler
    Flatiron Communications LLC
    http://www.flatironcomm.com

  • http://www.web-strategist.com/blog/ jeremiah_owyang

    Don

    Touché!

    Thanks, someone else pointed that out to me, I corrected to ‘their’.

    Listen, I don’t make any claims to be a great communicator, I leave it for the real pros. However, I do know my space, so you can take it as you will.

  • http://www.web-strategist.com/blog/ jeremiah_owyang

    Peter

    That makes sense, I agree with much of what you clarified.

    I will say that PR is a great solution if your objective is awareness, consideration, influence. However, I’ve yet to see proven numbers that indicate that PR directly drives sales, conversions, and leads each and every time like advertising, webinars, and sweepstakes.

    With that said, lead generation activities would perform poorly if they don’t have activities driving awareness, consideration, and preference.

    They all work together.

  • http://www.marxlayne.com michael layne

    Great article Jeremiah,

    As an owner of a pr agency in Detroit, I find that the public relations business is rapidly changing as traditional media outlets retract and the internet and social marketing expand in importance. thinking smarter, offering more value across numerous communications platforms and communicating directly with consumers will be key.

    Michael

  • Ben Billingsley

    This is a great thread but I think the discussion around fees is misguided. The question should not be how much am I paying my agency and is now the time to renegotiate fees – but rather – what kind of business impact are they having and what is it worth? If your agency can prove that they drive sales – the value would ultimately go up in a downturn.

    The rub is that traditional PR is difficult to measure and traditional PR people do not always tie outputs with business metrics. Luckily the PR world is changing and some agencies are embracing the concept of digital communications – which operates within a medium where impact can be easily measured.

    I agree with those in this thread who say that the PR industry needs to get with the times. If your agency is mostly focused on pure “media relations” and not thinking about your brands total digital imprint or the impact of conversational marketing, they are leaving most of their value at the door and you should question their fees.

    If they understand how the PR industry has evolved and how traditional PR has been augmented by social media, social networks, search, digital content creation, video, and the means to listen to and ultimately influence conversation – their value can be immense.

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  • http://www.pr-vantage.com Rob Adler

    As for renegotiating PR fees, I think that should depend on whether the agency jacked up fees during good times. Firms that take a longer term view and kept pricing reasonable should get a reciprocal benefit on the other side.

    BTW. I am sure that you realize that everything you said about the PR market could apply as well to the market for market analysis. :-)

  • http://www.web-strategist.com/blog/ jeremiah_owyang

    Rob

    It’s kinda hard to find a market that’s related to service that it doesn’t apply to.

  • http://bernaisesource.blog.com/ Dan Greenfield

    Spot on — We are living in what I call the “Pothole Economy” http://tinyurl.com/btr2hc – Vision is the 1st to go. Doers not strategists take center stage. It’s time to fill holes in your experience so you are not left behind.

  • http://www.springboardpr.com Domenick Cilea

    PR is evolving along with the entire media and publishing ecosystem it is part of.

    In my opinion, PR budgets and personnel are being reduced primarily because of the macro economic challenges (along with every other industry), more so than the profession’s ineffectiveness.

    That said, successful PR professionals (internal or agency types) must expand their skill-set, embrace creativity, and utilize tools such as blogs, online video, and social media to connect (and engage) with their target audiences.

    The basic tenets of PR today are the same as they were fifty years ago — message creation and communication/delivery. However there are so many new opportunities, techniques and technologies in which to deliver value across a multitude of channels.

    Domenick Cilea
    Springboard Public Relations
    http://twitter.com/dcilea

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  • http://desdeladoscuro.com jlopezmc

    Excellent analysis.
    My question: is this a GLOBAL thing? From what I see in my business, growth is very hard but different regions compensate each other. “New” PR markets increasingly invest in PR while more developed ones are asking for cost revisions… The world is big and PR have definitely not reach a maturity like the car industry or others…

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  • http://www.pranapr.com Prafull

    Hi,
    Good thoughts and nice flow of the article. But I dont agree with the line which says “Buyers Should Renegotiate PR Contract” PR agency should renogotiate the PR contract for increase in the price. THe reason is, during such time it becomes all the more difficult to do PR and so we have to apply added force and srategy for better performance and so more fees. Overall very interesting article.

  • http://duxmarketing.com Dux Marketing

    Thanks for the information you share, this really a big help and i learn a lot on public relation firm. I’ll come back often.

    Regards,
    Dux Marketing

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  • staffing321

    In fact, I would recommend that CMOs re-allocate a greater piece of their marketing budget to PR during tough economic times. They may just be surprised at the increased ROI.

    Find more jobs: http://www.staffingpower.com/

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  • http://www.seorus.com.au/ SEO Melbourne

    great information thanks for share

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